Capital Accumulation and the Dynamics of secular stagnation

Gilles Le Garrec () and Vincent Touzé
Additional contact information
Gilles Le Garrec: OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po

Working Papers from HAL

Abstract: We characterize the dynamics of secular stagnation as a permanent regime switching from a full employment equilibrium to an underemployment equilibrium. In the latter, the natural interest rate is negative, and the economy is in deáation. Due to the non negativity condition imposed on policy rate, the zero lower bond (ZLB) applies which prevents targeting ináation. The secular stagnation equilibrium is achieved in a standard overlapping generations model with capital accumulation where two market imperfections are introduced: credit rationing and downward nominal wage rigidity. To Ögure out how to escape the secular stagnation trap, we study the impact of various macroeconomic policies. Raising the ináation target is only e§ective if the central bank has enough credibility. By supporting aggregate demand, Öscal policy can help the economy get out of the secular stagnation trap. However, this policy reduces the incentive to accumulate capital: there is a trade-o§ between exiting secular stagnation and depressing potential GDP. Dynamic multi- pliers are upper than one unless the Öscal stimilus is too strong. We also shed light on an asymmetry in the dynamics: recovery takes longer than falling into recession.

Keywords: Secular stagnation; Capital accumulation; Zero lower Bound (search for similar items in EconPapers)
Date: 2016-06-01
Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03459297
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://sciencespo.hal.science/hal-03459297/document (application/pdf)

Related works:
Working Paper: Capital accumulation and the dynamic of secular stagnation (2016)
Working Paper: Capital Accumulation and the Dynamics of secular stagnation (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-03459297

Access Statistics for this paper

More papers in Working Papers from HAL
Bibliographic data for series maintained by CCSD ().